Bennett Hypothesis: Financial Aid Increases Tuition

[alexf.1990]

More people started attending college when financial aid became available. So, you're saying that the solution is to give fewer people the chance to attend college?

One of the theories is that the cost of college has actually gone up due to increased labor costs. If the demand for professors and instructors goes up, then you have to pay them more. The cost of providing healthcare to employees has also gone up. Placing the blame solely on financial aid seems kind of lazy. Supply and demand doesn't only work on that end.

I doubt that a significant portion of tuition goes towards a professor's salary. Most undergrad courses are taught by unpaid TAs or adjunct professors who are paid next to nothing.

Here is some more common sense. When states reduce subsidies, then colleges have to increase tuition rates. It doesn't get any simpler than that.

This accounts for a part of the problem. I don't think that states have reduced subsidies so much as to cause a significant portion of the astronomical rise in tuition rates. For example, if states used to subsidize 75% of tuition rates and then reduced it to zero, you'd only see a 4 fold increase in tuition rates. What we've seen over the last couple of decades is significantly higher than that.

Here's even more common sense. The increase in student loan debt is correlated with the increased popularity of for-profit colleges and online programs.

These for-profit programs certainly cost more. It's hard to say that as many people would attend but for the easy access to loans.

And, some more common sense. Financial aid has been around for longer than I've been alive, but the dramatic increases in tuition are relatively recent and got worse during the Great Recession when state funding had to be cut.

That's factually inaccurate. Tuition increases between 2007-2018 for public universities only rose 2.4% per year, compared to 3.3% from 1987-1998. https://trends.collegeboard.org/college-...ges-decade


If supply and demand were really that simple, then why are wages growing so slowly when unemployment is so low?

This is because of the way unemployment rates are calculated. Only those actively seeking work are counted among the unemployed. The percent of the population that is in the labor market is still at pre-recession levels. In the long term, wages have been stagnate because of supply pressures from incoming low-skill immigrants, automation killing low-skill jobs, and off-shoring of manufacturing. We have a surplus of "button pushers."